ELLIOTT WAVE ANALYSIS - Latest Market Commentary
U.S. and European stock markets upheld their bullish bias during the last trading days. This was partly fuelled by inflation data for the Euro zone which recorded a 5-year-low and thus prompted expectations that the ECB might take into consideration further stimulus measures. Although this is not considered a ‘game changer’, it tallies with the prevailing upward tendency that is likely to carry equities a bit higher during the next few weeks. The S&P 500 retains original upside projections to min. 2014.12 but is likely to extend higher towards 2045.00+/- to maintain a correlation, albeit weak, with European stock markets. These are seen as the recent outperformers and also expected to continue outperforming during the next weeks – the Eurostoxx is measured to ultimate upside at 3400.00+/- to finalise a multi-month ending expanding-diagonal sequence; Germany’s Xetra Dax is shown engaged in a 5th wave upswing with targets projected above its all-time high to 10367.35. In contrast, Asian markets have calmed down a bit in the recent weeks. From an Elliott Wave perspective, this is ###in line with structural requirements – the Shanghai Composite, for example, is struggling to overcome the 2260.00-70.00 area which marks the completion of a ‘C’ wave within a contracting triangle. Wave ‘E’ within this pattern cannot exceed wave ‘C’ – that is why the probability clearly points lower from current levels for this index. Similarly, upside potential for the Nikkei 225 is limited. The late July high of 15759.66 marked the completion of a textbook expanding flat sequence – this is why a break above there is deemed unlikely. Instead, the index is shown with a high propensity for entering a 3rd wave downside acceleration within the multi-month five wave decline from 16320.22 – ultimate downside remains towards 12000.00+/-.
The US$’s recent high of 8272 was not broken which is in line with forecasts that describe an imminent reversal from current levels that would trigger a decline during the next weeks. The reason why a decline is expected is because the advance from the July low of 7974 can be counted as a completed five wave impulse – a three price-swing counter-trend correction is now expected to counter-balance this advance. Seen from the May ’14 low of 7890, the upward momentum is very strong – a 1-2-1 sequence is now visible which opens up the possibility of upside acceleration within a 3rd of 3rd. Shorter-term, however, the correction from 8272 is projected to downside at either 8157 (fib. 38.2%) or 8068 (fib. 61.8%). A similar setup applies for the Euro/US$. Last week’s low of 1.3153 could set the stage for a temporary upswing during the next weeks – idealised upside is measured towards the fib. 38.2% resistance at 1.3360 but could extend to 1.3489. Afterwards, the Euro is shown to enter its 3rd of 3rd downside acceleration which would corroborate ultimate downside to 1.2528 in the next months. Meanwhile, Sterling was slowly drifting lower during the last week but managed to stabilise at 1.6513. This tallies with ###the proposed double zig zag decline in progress from 1.7192 – a fib. 61.8% extension of the decline so far measures to 1.6105 which, extended by a fib. 38.2% ratio, projects to ultimate downside at 1.5708, very close to the 1.5680 retracement level derived by a fib. 61.8% ratio of the preceding multi-month advance. Thus, the 1.6513 low is seen as the end of wave ‘A’ of the first zig zag – a counter-trend upswing as wave ‘B’ is now required prior to continuation lower to finalise the first zig zag at 1.6105. US$/Yen is engaged in a smaller 4th wave counter-trend sell-off prior to 5th wave upside continuation. These price swings are part of a larger ending contracting-diagonal advance from 10081 that represents the finalising leg of a multi-month flat pattern with an upward bias – a ‘slanting flat’ in Ralph Nelson Elliott’s own words. Ultimate upside is measured to 10463-94 – once achieved, await a reversal signature to validate the resumption of the larger downswing with ultimate objectives remaining unchanged to 9242-12.
Bonds (Interest Rates)
US10yr yields have broken critical short-term support at 2.355% which validates downside continuation towards 2.287% during the next trading days. This decline is deemed the finalising phase in a multi-month 4th wave expanding flat pattern that began from the Sep.’13 high of 3.008%. Thus, a reversal from the 2.287%+/- area should trigger a substantial 5th wave upswing during the next several months, with upside projections to 3.850+/-. Although US10yr yields are forecast to nudge briefly into lower lows, the T-Note futures are not expected to break above their equivalent August high. Their recent underperformance is seen as the effect of the different pattern structure ###– whilst the US10yr yield is engaged in a more dynamic expanding flat sequence, the T-Note futures have been unfolding into a contracting trading range during the last several months, a contracting symmetrical triangle in Elliott’s terms. Synchronised with the finalising sell-off in the U.S., Germany’s DE10yr yield is now approaching ultimate downside to 0.849% that is measured by a fib-correlative 61.8% ratio between primary waves 1-3 and 5 within the larger multi-year decline from the July ’08 high of 4.705. As this decline from 4.705% is only the final part of a much longer multi-decennial downswing, a reversal from the 0.849% area is expected to initiate a major generational uptrend.
Gold’s upswing during the last trading days might already have completed at the 1296.56 high. This allows for immediate downside continuation in an accelerative manner as the precious metal is forecast to enter the 3rd of 3rd within the five wave expanding-impulse sequence from 1344.93. There is, however, still the danger that a 1-2-1 sequence unfolded from the 1273.08 low as this level is close to the ‘crossroad’ that differentiates between a bearish and bullish scenario for gold to take place during the next months. According to the bullish interpretation, the 1273.08 low completed a single zig zag sequence from 1344.93 which would suggest upside continuation towards 1475.00+/- in the months ahead. Yet it would require upside acceleration from current levels – as long as this is not the case, the probability clearly points to the bearish scenario that advocates downside continuation in the months ahead, with ultimate objectives remaining unchanged towards 1096.00+/-. Despite a differing wave pattern structure, silver is in the same position as gold. The decline from its 21.60 high came to a halt at 19.28. In the bullish and alternate interpretation, the decline could be ###interpreted as a completed double zig zag sequence as a larger 2nd wave. Thus, 3rd wave upside acceleration would be expected from current levels. Very short-term substructure of the advance from 19.28 however appears corrective. This adds evidence to the bearish and preferential scenario that interprets the decline from 21.60 as a successive 1-2-1-2-1-2-1-2 sequence with downside acceleration to follow. Thus, an accelerative break below 19.28 would corroborate continuation lower and reinforce ultimate objectives to 17.43 to be approached in the months ahead. Crude oil has staged a reversal signature from 92.50, close to original downside objectives at 92.17. It remains to be seen whether this current advance will extend into a five wave sequence which would indicate that the 92.50 low completed a multi-month expanding flat pattern. Failure to do so would otherwise shift the probability towards downside continuation in the months ahead, with ultimate objectives measured to 77.28.